Considering commercial finance broker franchise

[Slac000]

Hi guys

There was the thread on this topic a year ago, but it's been closed. I can't reply or discuss it further.
Taking into account everything what's been said there, I'm still seriously considering buying Brokerplan franchise (costs £15-25k, which seems to be a lot considering unclear earnings potential). I have few reasons for that:
- after opening my bookkeeping practice, I've felt more interest in loans than bookkeeping services, so I think
- I've found a niche where market is empty, thought the size and demand of that is still unclear
- I used to do this many years ago in my home country and many things here are quite similar, so I'll not be total newbie
- job nature and structure fits me much more than bookkeeping

Now to be come a broker there are two routes - be independent or buy a franchise. To be independent is longer and more complicated route, I don't have enough experience in this industry to go that way, so I'm considering a Brokerplan franchise.
What worries me a lot is that competition will be though and there will not enough business to cover costs and make profit (or earn salary). Brokerplan doesn't disclose any substantial information to do a proper assessment of the market and competition, potential earnings etc. They are very abstract, which is a bit annoying. They are broker's themselves as well.
I am in early stages of planning and would like to hear opinion and feedback from those who already in commercial financing market or closely related to it. Open to consider any other options if such exist.
Feel free to PM me is you are uncomfortable to talk publicly.

Thank you.

 

[Mark T Jones]

I don't know brokerplan, so wouldn't comment specifically on them or their franchise - I will throw in some general thoughts

As with any franchise, the important questions revolve around specifically what each party expects to put in and to get out.

A key thing a franchisor can add is lender relationships- these will be significantly stronger haz a specialist niche than if they claim to be specialists in everything

Loans are bottom of the pile broker products, and the market tightens a lot in tough times - like now.

There are currently a lot of very desperate brokers scraping around after every deal

 

[Mark T Jones]

To add a more general point, it's safe to assume that a quality franchisor will want to interview and engage with you about expectations, whereas a flakey one will sell to you to get the fee

 

[tony84]

What are they bringing to the party for the £25k? What are the ongoing costs? Back office systems, PI insurance, regulatory costs, splits of any business etc etc - are they fair costs or inflated? Forget what other brokers can earn, I know residential brokers who earn £15k and some who earn closer to £115k.

If you want to give me £25k, I can look at setting you up the commercial arm of my business I will provide some leads - Thats a joke, but for £25k I think they are having you over.

 

[WaveJumper]

Out of interest guys, going down this route do you need any qualifications / FCA registration etc etc

 

[Mark T Jones]

Out of interest guys, going down this route do you need any qualifications / FCA registration etc etc

You certainly don't need qualifications

You will need some kind of authorisation - though I can't claim to know what level

I have what is known as limited authorisation, because regulated business us a tiny part of what I do (in fact I haven't done a regulated deal since FCA came into existence)

 

[Frank the Insurance guy]

Out of interest guys, going down this route do you need any qualifications / FCA registration etc etc

Yes, you definitely need FCA registration - I'm sure the Franchise Provider can organise it. I'm sure you'll need relevant training to get FCA registration, but again the franchise will probably arrange this.

 

[Gordon - Commercial Finance]

You need the FCA 4a Permissions, which I presume the franchise provider would give with them as a principle and you as an AR.

Much cheaper way to get that is to become an AR to any other principle broker. You will have to go out and find your own work to do and they will take a cut but usually no up front fee. That's the route I went down when I got started, and now I'm in a position where I'm looking to take on new ARs as a director of the principle.

 

[Slac000]

What are they bringing to the party for the £25k?

They give you all the back office support i.e. legal, marketing team, case managers for complex cases, market leading rates, register company with FCA in one month (usually takes 3-6 months). Basically you get fully functional broker company in few months and as franchisee you just generating business for profit share (60-100% from commission). They don't restrict you to their network, you may sign independent contract with lenders or submit cases as independent.

If you are new to this market (like I am), then they provide everything what's needed for good start, saving you 2 years, but if you are experienced in that, you may do everything yourself, it just might take longer than few months (but will spare you £25k)).

 

[Slac000]

There are currently a lot of very desperate brokers scraping around after every deal

That's the main thing what holds me back from trowing £25k into the business.
Thanks for your response, Mark

 

[Mark T Jones]

They give you all the back office support i.e. legal, marketing team, case managers for complex cases, market leading rates, register company with FCA in one month (usually takes 3-6 months). Basically you get fully functional broker company in few months and as franchisee you just generating business for profit share (60-100% from commission). They don't restrict you to their network, you may sign independent contract with lenders or submit cases as independent.

If you are new to this market (like I am), then they provide everything what's needed for good start, saving you 2 years, but if you are experienced in that, you may do everything yourself, it just might take longer than few months (but will spare you £25k)).

That's their sales spiel - you need to be talking in hard terms about how it will really work and what each party will do

It's highly unlikely that they have any kind of fast track with FCA - I got authorised about 4 years ago - it took significantly less than a month

There is certainly an advantage to you being under an umbrella, but you really need to think about what £25k is buying you and whether this organisation is best fit moving forwards there are a lot of options

 

[tony84]

Before handing over £25k and upto 40% of your income look elsewhere!
You are not registered with the FCA, you will be registered as an AR of the main company - which is different. Any DA firm can get you set up as an AR quicker than 6 months.

Legal work - there is none, you have PII and compliance in place.
Marketing - well yes, but this is just providing leads which any established business can do.
Back office systems - £30-60 a month.
Admin - I would be surprised is this is included, but I suppose with a 60/40 split then it should be.

Seriously, I would 100% consider selling a franchise with admin and leads for £25k and a 40% split. It is a terrible deal your end (in my opinion).

 

[Slac000]

highly unlikely that they have any kind of fast track

Yes, they do, it is in form of associate or smth, I don't remember now, but yes, they have that.

what £25k is buying you

With mcdonalds things are the same - their franchise is very expensive, but it pays off. I am not questioning what they provide for £25k, which I agree - is expensive, maybe overpriced, but such are the rules in franchise business. My main concern is how to properly asses the market, especially when lending is in decline. This franchise is providing marketing and sales support, but they don't generate leads, I must find these myself.

there are a lot of options

What do you mean with this?

Thanks

 

[Mark T Jones]

Yes, they do, it is in form of associate or smth, I don't remember now, but yes, they have that.


With mcdonalds things are the same - their franchise is very expensive, but it pays off. I am not questioning what they provide for £25k, which I agree - is expensive, maybe overpriced, but such are the rules in franchise business. My main concern is how to properly asses the market, especially when lending is in decline. This franchise is providing marketing and sales support, but they don't generate leads, I must find these myself.


What do you mean with this?

Thanks

OK - I give in

 

[Ian J]

With mcdonalds things are the same - their franchise is very expensive, but it pays off. I am not questioning what they provide for £25k, which I agree - is expensive, maybe overpriced, but such are the rules in franchise business.

One of the major assets that one buys with a franchise is the name. You mentioned McDonalds which is a name that everyone knows and merely the entitlement to use the name will have customers queuing up at your door and the same goes for many other well known names that many people don't even know are actually franchises.

As I said in the thread last year I had never heard of Brokerplan and I still haven't so recognition of the name when you are trading will bring you nothing

 

[tony84]

With mcdonalds things are the same - their franchise is very expensive, but it pays off. I am not questioning what they provide for £25k, which I agree - is expensive, maybe overpriced, but such are the rules in franchise business. My main concern is how to properly asses the market, especially when lending is in decline. This franchise is providing marketing and sales support, but they don't generate leads, I must find these myself.

Marketing and sales support - what does that look like? It sounds very generic.
If they are doing marketing but not providing any leads, what is the point in their marketing? Does it not make you wonder why 3-4 people who all work in or on the fringes of financial services have never heard of them? I think I may have heard of them, but I could be getting them mistaken with someone else, they are certainly not a name at the forefront of my mind.

You could start up your own business as either an AR of another firm or under a network, save your £25k and invest that in your own advertising.

It sounds like you have made your mind up, but I think McDonalds is a brand name. If you are walking down the street and you want some food but unsure, you know what you are getting with a Mcdonalds.

With brokerplan they are not a brand anyone has heard of on here and for the people who do think of them, they will already have their broker. Unlike Mcdonalds, I have been to about 7-8 branches just in Manchester, someone looking for a broker will not switch to a new broker unless they have to.

Its your £25k, you can spend it however you like, it sounds like you have made your mind up. But all I would say is to just take a look around and discuss other options before spending that money because to me personally it sounds like a very one sided deal.

 

[Gordon - Commercial Finance]

Based on what you have noted here this is a very bad deal for you, and a great one for brokerplan. If I was paying someone £25k up front to just become an AR, I would not be then giving up 40% of the commissions that I had to sweat to find.

Sounds like you might have your heart set on throwing that £25k away, but now 3 commercial finance brokers are telling you to avoid.....your choice.

 

[Slac000]

ok guys, thanks for your comments, I'm convinced. What if I still I want to become broker - what are my options? What are the alternatives? I know banking products, but I have zero experience in UK market. Tha'ts why this franchise got my attention.
Probably I can get FCA authorisation myself or for a fee, I could do promotional side by myself, I could sign few contracts with lenders for the beginning, but I don't think I will be able properly advise customer having no experience or proper support. I don't know what is possible what is not, what are financial and legal requirements for any type of product, what can I promise for customer and when better not to promise anything. And that is where I see the most value in franchise - they provide full training (for two people), back office and support in complex cases.

p.s.for £25k they release 100% of commission, while %60 for £14k franchise.

 

[Gordon - Commercial Finance]

Become an AR for an existing broker. Then you have the FCA permissions, you have agreements with a panel of lenders, and all you have to do is go out and find deals to do.

Where are you based?

 

[Mark T Jones]

ok guys, thanks for your comments, I'm convinced. What if I still I want to become broker - what are my options? What are the alternatives? I know banking products, but I have zero experience in UK market. Tha'ts why this franchise got my attention.
Probably I can get FCA authorisation myself or for a fee, I could do promotional side by myself, I could sign few contracts with lenders for the beginning, but I don't think I will be able properly advise customer having no experience or proper support. I don't know what is possible what is not, what are financial and legal requirements for any type of product, what can I promise for customer and when better not to promise anything. And that is where I see the most value in franchise - they provide full training (for two people), back office and support in complex cases.

p.s.for £25k they release 100% of commission, while %60 for £14k franchise.

OK, that makes things a little clearer. With some time on my hands, here is a comprehensive answer.

The lending market is, in many respects the toughest I have experienced in about 30 years (the recession of '92, to be precise) - there are differences & similarities.

Many lenders who closed their doors last March have yet to re-open, some never will. Those who are lending are extremely unclear on how to build the events of the last 16 months into their assessment - not least because it isn't yet over.

As ever in a tough market there will be winners & losers. The losers will be those who are inexperienced, over-borrowed, have spent their cash (borrowed) on fripperies like fancy offices, Bentleys, boats etc - and above all, have no clear sense of identity, just chase random KPIs like headless chickens. There are quite a few of them.

The winners will be properly set up - above all, they will have a clear niche and a clear position within that niche.

My friend @Gordon - Commercial Finance on here is niched in the forestry business - I'm not sure he has felt any impact at all.

@tony84 is niched in self-employed mortgages. He feared the worst, but has been very busy.

My niche is fit-out in hospitality & leisure - obviously it's been hit very hard. However, my position within that niche is as a broker who digs deep and works with selected clients to get the best chance of getting a deal done (opposed to the simple processing machines that is 70% of brokerages). Whilst it's tough I'm getting by & will stick with it because:

a. There are still solid pockets within the niche.
b. It will definitely recover and
c. All the KPI-chasers will have moved elsewhere.

I keep a close eye on what other brokers are up to on LinkedIn - And I know which ones know their identity and which are headless chickens. Funding Circle join the Recovery Loan scheme, headless chickens go out and start shouting about recover loans - now that is a crowded market! Personally, if a good proposal merits a recovery loan, then I will provide one.

Your opening post alludes to a niche - if you want to DM me I'll be happy to feed back on whether it is really a viable niche of a fools-gold black hole.

Ultimately £15K is a huge amount to gamble on what is effectively an experiment. If your niche has legs, in the first instance I'd partner with an established, respectable broker who operate in a similar field - I might be able to point you.

Caveat: It will depend on whether deals are regulated or not.

 

[Mark T Jones]

Become an AR for an existing broker. Then you have the FCA permissions, you have agreements with a panel of lenders, and all you have to do is go out and find deals to do.

Where are you based?

It's a sensible solution, but prior to that I'd just put a couple of sample deals through said broker.

 

[Gordon - Commercial Finance]

It's a sensible solution, but prior to that I'd just put a couple of sample deals through said broker.

100%!

I personally wouldn't put an AR onto my books without seeing some example deal-flow first and seeing that it will be worthwhile.

 

[Slac000]

Where are you based?

I'm in SE London

What is normal regular commission rate I could expect if I sign with existing broker?

 

[Slac000]

OK, that makes things a little clearer.

Thank's for such comprehensive response. And yes please, point me to the right broker.

I can tell you a bit about my situation if that helps.
I've started as a freelance bookkeeper in mid 2020. I didn't advertise at all due to time constraints, I've been working with one accounting practice and they been sending me customers they couldn't or didn't want to cope with. I didn't feel big interested in bookkeeping/accounting services from those customers. They mostly wanted to have their tax returns done and that's it, but I've notice their interested in loans. That was the time of BBL's and that was driving the interest, but many business were interested in more sustainable funding options. So I've checked my community and found that we have no commercial broker at all. We have 10-20 accounting companies, 3-5 mortgage brokers, insurers, legal, but no one who offers business loans. So I decided to explore options to put something in this place. I can't expect to approach high scale development deals with my poor English, but I can put something in my community and feel quite need of that.

The biggest challenge with that is to properly asses the capacity of the market. On that depends the effort (money and time) I'm willing to put in. I have some understanding on what's going on here and what I would be funding (80% business working in construction as various subcontractors so you can imagine), but is just that . I've have excluded Brokerplan as an option at early stage. Although their package is very attractive for me, it's too risky and too expensive to be involved into just for an experiment. On the other hand, I have no any other way to figure out as just to start advertising with these services and see where it takes, but I can't start advertising not being broker or backed up by proper broker. And this closed circle took me here.

If all that sounds ok with you and you think it's worth exploring further, I'll DM you later on.

Thanks

 

[Mark T Jones]

The first thing you need to understand is that unsecured loans are by far the biggest cr@p magnet in the finance industry - finding "leads' is extremely easy - converting them is hard

Back in the good days, Funding Circle told me that their conversion rate on cold Internet enquiries was 5%. That is optimistic now

If your clients are sole traders or or partnerships - or if they are non home-owners, I really wouldn't bother.

If they are businesses and people of some substance genuinely looking to fund expansion plans, it may be worth pursuing, but don't expect it to be easy.

You might also want to look at some of the short term facilities available and potentially factoring

If you do partner with a broker, make sure that they have experience in these products

 

[Gordon - Commercial Finance]

I'm in SE London

What is normal regular commission rate I could expect if I sign with existing broker?

depending on their generosity and the extent to which you can be left to it, 70%-90% I reckon.

 

[Slac000]

The first thing you need to understand is that unsecured loans are by far the biggest cr@p magnet in the finance industry - finding "leads' is extremely easy - converting them is hard

Back in the good days, Funding Circle told me that their conversion rate on cold Internet enquiries was 5%. That is optimistic now

If your clients are sole traders or or partnerships - or if they are non home-owners, I really wouldn't bother.

If they are businesses and people of some substance genuinely looking to fund expansion plans, it may be worth pursuing, but don't expect it to be easy.

You might also want to look at some of the short term facilities available and potentially factoring

If you do partner with a broker, make sure that they have experience in these products

Hi Mark

Tried to DM you, but system didn't allow send the message. Not sure if that's for settings or that I am new member, but if you're able to DM from your side, then please do this.

Thanks